Comparing EU and US Merger Guidelines

Overall convergence between EU and US merger policy has been a popular topic in economic and legal scholarship for many years. Merger control convergence (or the potential lack thereof) has become an increasingly frequent sub-topic of discussion within the broader debate, especially following a few highly publicized cases resulting in opposite initial determinations by the Directorate General for Competition (“DG Comp”) and the US authorities (e.g. GE-Honeywell, Boeing–McDonnell Douglas, Oracle-PeopleSoft). Additionally, concrete comparison of outcomes in merger challenge cases is possible through analyses of actual data and documents made available by DG Comp and the Federal Trade Commission (“FTC”)[1], making the topic ripe for comparative analysis and discussion. Qualitative and quantitative comparisons of these statistics conducted in recent years have produced findings of some notable differences, but also similarities—including a high a percentage of similar final outcomes.[2] Thus, the most famous cases are likely outliers, involving huge transactions with political overtones, in an overall converging landscape of complex, but less “complicated,” transactions.

There are indeed differences in the fundamentals of the two legal systems, but the trend appears to be toward convergence. Council Regulation (EC) No 139/2004 (the “2004 Guidelines”) likely represents the next step toward that end. The 2004 Guidelines updated DG Comp’s merger analysis parameters and thereby brought EU merger policy closer to that of the US. Convergence is, in fact, an explicit objective of DG Comp as is stated on the international section of the competition portal of the EC’s website,[3] and the FTC, Department of Justice (“DOJ”) and European Commission (“EC”) are all members of the International Competition Network—an “international body devoted exclusively to competition law enforcement” which “serves to build consensus and convergence towards sound competition policy principles across the global antitrust community.” A side-by-side comparison of DG Comp’s 2004 Guidelines with the Horizontal Merger Guidelines followed by the US DOJ and FTC shows just how similar the mechanics of the two systems are.

	EU[i]	US[ii]
Source of Guidelines	EU Competition Law: Rules Applicable to Merger Control	DOJ and FTC Horizontal Merger Guidelines
Reviewing Governmental Entity	Directorate General for Competition or relevant member state’s Competent National Authority (“CNA”) (Review may be referred to competent member state authorities if appropriate; aka “One-stop-shop” and “subsidiarity” principles)	Federal Trade Commission and Department of Justice. Both agencies consult, review is then “cleared” to one agency or the other
Mandatory or Optional Reporting?	Mandatory for transactions in which “concentration” and “community dimension” characteristics are present	Mandatory for transactions meeting transaction and party size thresholds, and not qualifying for a reporting exemption
Type of Transaction Triggering Report	“Concentration” – change of control on a lasting basis resulting from: merger of two or more previously independent undertakings or parts of undertakings; or acquisition by one or more persons (already controlling at least one undertaking) or by one or more undertakings of direct or indirect control of one or more other undertakings	Mergers Consolidations Acquisitions of voting securities, non-corporate interests and certain assets Formations of joint ventures and partnerships Acquisitions of certain exclusive licenses
Monetary Threshold Triggering Mandatory Report	“Community Dimension”: Combined revenue > €5B; and 2 or more parties w/EU revenue > €250M (unless > 2/3 of each comes from one and the same member state) -OR- Combined revenue > €2.5B; Combined revenue of each in 3 or more member states > €100M; 2 or more parties each w/revenue in the 3 or more member states above > €25M; and 2 or more parties w/EU revenue > €100M (unless > 2/3 of each comes from one and the same member state)	Transaction Size:Value of the transaction exceeds $263.8M -OR- Transaction and Party Size: Value of the transaction is between $66M and $263.8M and: one party has $131.9M or more in annual net sales or total assets; and other party has $13.2M or more in annual net sales or total assets. (both are subject to adjustment based on inflation)
Transactions Not Reaching Mandatory Reporting Thresholds Still Subject To Review?	Yes	Yes
Exemptions	Certain Research & Development agreements Certain “Specialisation Agreements” (e.g. two parties make same product, one party agrees to cease production and buy from other; reciprocal specialization agreements; joint production agreements)	Acquisitions of certain goods/real estate in ordinary course of business Certain transactions made only for investment purposes if acquiring party holds 10% or less after acquisition of acquired party’s voting shares Intra-person transactions Transactions involving foreign firms Acquisitions by certain government entities Acquisitions subject to review by other government agencies Formation of unincorporated entities where no party obtains control
Substantive Test	Whether the transaction will increase power of combined undertakings on the relevant market in a manner likely to have adverse effects for consumers including: higher prices lower product quality reduced choice	Whether the transaction may result in a substantial lessening of competition or tend to create a monopoly. Guidelines designed to detect mergers that may create or enhance a merged entity’s market power to: increase prices reduce output diminish innovation engage in exclusionary conduct toward competitors
Issues for Assessment	Definition of the relevant product and geographic markets Market Concentration (based on HHI) Potential significant anticompetitive effects (coordinated effects are a common outcome)	Definition of the relevant product and geographic markets Market concentration (based on HHI) Potential adverse competitive effects (both unilateral and resulting coordinated effects)
Relevant Market Definitions	Product market: all products/services regarded as interchangeable or substitutable by consumer by reason of products’ characteristics, prices and intended use.Geographic market: area where firms are involved in supply of products/services and where conditions of competition are sufficiently homogeneous.	Product market: a product of a merging firm that competes with that of other merging firm and substitutes for that product.Geographic Market: area where suppliers make sales, including all competing suppliers with facilities in that region, regardless of customers’ location. However, if suppliers can price discriminate based on customers’ location, geographic market will be where customers are located.
Are efficiency and profitability considered mitigating factors?	Yes – but must be a proven to be an outcome of the merger.	Yes – but must be substantiated by the merging firms and verifiable by reasonable means. (Efficiency alone almost never saves a merger)
Waiting Period To Complete Transaction After Notifying Authority	3 weeks	30 days – but “early termination” of review may occur if no competitive concerns are initially raised
Secondary Assessment	“Phase II”: If anticompetitive concerns are raised in initial review, DG Comp may initiate “Phase II” (in depth review of the transaction including requests for further detailed information, documentation, conduct interviews, etc.).	“Second Request”: if anticompetitive concerns are raised, DOJ or FTC may request further information, documentation, conduct interviews, etc. in order to reach a final conclusion.
Potential outcome if deemed anticompetitive	Order against implementation of the transaction (total or partial) Dissolution if concentration implemented prior to commission’s decision Fines for failure to comply	Partial divestiture of assets Order against implementation of the transaction (total or partial) Dissolution if concentration implemented prior to FTC/DOJ decision Fines for failure to comply

[i] See Europa: Summaries of EU legislation, Competition, http://europa.eu/legislation_summaries/competition/.

[ii] See Aimee Goldstein and Andrea Levine, Practical Law Company, Competition Handbook 2011: Country Q&A, United States, Merger Control (2011) available at http://www.stblaw.com/google_file.cfm?TrackedFile=4B46116606DCEAD896B179&TrackedFolder=585C1D235281AED996A07D5F9F9478AB5A90188899.

[1] DOJ does not provide statistics to the public. Therefore figures from the US rely solely on FTC data.

[2] Bergman, Mats A., Coate, Malcolm B., Jakobsson, Maria and Ulrick, Shawn W., Atlantic Divide or Gulf Stream Convergence: Merger Policies in the European Union and the United States (April 13, 2010). Available at SSRN: http://ssrn.com/abstract=975102 or http://dx.doi.org/10.2139/ssrn.975102.

[3] European Commission: Competition, International, Facing the Challenges of Globalisation, http://ec.europa.eu/competition/international/overview/ (“Our main objective has been to promote convergence of competition policy instruments and practices across jurisdictions and to facilitate cooperation with competition authorities in other jurisdictions in enforcement activities.”).

[4] See Europa: Summaries of EU legislation, Competition, http://europa.eu/legislation_summaries/competition/.

[5] See Aimee Goldstein and Andrea Levine, Practical Law Company, Competition Handbook 2011: Country Q&A, United States, Merger Control (2011) available at http://www.stblaw.com/google_file.cfm?TrackedFile=4B46116606DCEAD896B179&TrackedFolder=585C1D235281AED996A07D5F9F9478AB5A90188899.